Haig Bathgate comments in The Scotsman on the economic slowdown in China

Haig Bathgate comments in The Scotsman on the economic slowdown in China

20th July 2013

The news that the second quarter has seen a decline in GDP growth in China from 7.7% to 7.5% has been met with mixed reactions. Haig Bathgate shares his views on the subject in The Scotsman.

Private investors and pension funds have ploughed billions of pounds into China, Asia, Far East and emerging markets funds and stocks in recent years, with a spike in 2008 and 2009 as the financial crisis unfolded.

The region's economic growth has not always produced results for investors, however. The MSCI China Index is up just 2.6 per cent over the past three years, Trustnet figures show, compared with the 36.5 per cent growth posted by the MSCI AC World index.

Many investment experts in Scotland are playing down the impact on savers and investors, claiming that growth is still very much evident. The Chinese economy may be growing more slowly but it is still outperforming many of its rivals.

However, Haig is more cautious on the outlook for China, pointing to a US resurgence and a shift in energy industry investment back towards the US and Latin America that has had negative implications for China.

"Additionally there has been major misallocation of capital in terms of infrastructure spend and there is a significant number of bad loans in the shadow banking sector which need to be addressed at some point. It feels like that day is fast approaching with the recent regime change," he said.

"We've also seen the minimum wage increase threefold over the past few years in China which means that relative to other emerging markets it is no longer as competitive as it once was."

China has long attracted investors on the basis of its rapidly growing economy and lack of debt, but Bathgate believes the proposition is far more complicated than that.

"The de-coupling argument that is often used has been completely discredited since the start of the credit crisis back in 2007. Nearly two thirds of Chinese GDP is driven by exports, which means they are very reliant on the western consumer."

The slowing rate of growth in China has led to low valuations that some fund managers believe presents a golden chance for investors prepared to buy in now. That is a risky strategy, Bathgate warned.

"Inevitably the recent weakness will present opportunities but it could be like catching a falling knife in the short term," he said.

"We're certainly holding off increasing weightings to this area at the moment. We'd recommend exercising caution at this stage.